Geldof Metaalconstructie NV v Simon Carves Ltd

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The Court of Appeal in Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667 clarified the test on equitable set-off.

Carves, the main contractor in a construction project, wished to set off its claim for damages against Geldof under one contract against Geldof’s claim for overdue payments under a separate supply contract. While both contracts related to the same construction project, but were standalone contracts concluded at separate times.

There was a contractual set-off in the supply contract. But was Carves entitled to an equitable set-off its counterclaim under the first contract. The court set out the correct legal test to be applied.

The modern starting point of the law of equitable set-off is Hanak v Green [1958] 2 QB 9, which held that equitable set-off was available: (a) if it would be “manifestly unjust” to enforce the claim without regard to the cross-claim; and (b) if there was a “close relationship between the dealings and transactions which gave rise to the respective claims".

Just how close this “close relationship” must be was not clear:

  • Some cases have held that the cross-claim must flow out of the same transaction or be closely connected with it.[1]
  • Others have gone further to require the claims be “inseparably connected”.[2]
  • One suggests the former “impeachment of title” test (a requirement that a cross-claim should be so closely connected that it impeaches the claimant’s demand) is still relevant.[3]

The Court rejected the “impeachment of title” test in favour of a single test with a formal and a functional element:

  • Formally there must be a close connection between the claim and cross-claim.
  • Functionally it must be unjust to enforce the claim without taking into account the cross-claim.

See also

References

  1. ↑ Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1978] 2 Lloyd’s Rep 132. Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938).
  2. ↑ Bank of Boston Connecticut v European Grain and Shipping Ltd (The Dominique) [1989] AC 1056. Dole Dried Fruit and Nut Co v Trustin Kerwood Ltd [1990] 2 Lloyd’s Rep 309.
  3. ↑ Leon Corporation v Atlantic Lines and Navigation Co Inc (The Leon) [1985] 2 Lloyd’s Rep 470).
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